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Car owners in Venezuela unfazed by planned fuel hike

By Associated Press FABIOLA SANCHEZ, Associated Press JORGE RUEDA

Dec. 23, 2013

Caption

This Friday, Dec. 20, 2013 photo shows a 1980 Mercury Zephyr parked in a taxi rest area in Caracas, Venezuela. Unlike the well-maintained 1950s-era American automobiles that grace the socialist streets of Havana, Cuba, Maduro's staunchest ally, there's nothing majestic about Venezuelans' love affair with its steel behemoths. Most of the cars are clunkers, Dodge Chargers and Chevy Malibus from a bygone era many Americans would just assume forget. (AP Photo/Fernando Llano)

CARACAS, Venezuela (AP) — Owners of the 1970s-era gas guzzling trucks and sedans that have long reigned over Caracas' smog-filled roadways will soon have to pay a bit more to keep flaunting their energy-inefficient monsters.

As an economic crisis drains government coffers, President Nicolas Maduro is putting motorists on notice and taking on one of the nation's biggest sacred cows: nearly free gasoline. With cut-rate prices for fuel, Venezuelans have never felt compelled to buy smaller, more environment-friendly vehicles like motorists in many other countries, often favoring decades-old clunkers or newer SUVs.

Prices at Venezuelan gas pumps have been frozen for almost 20 years with politicians hesitant to repeat the mistake of rising prices in 1989, triggering days of deadly rioting. The late President Hugo Chavez once confessed it pained him to practically give away fuel to luxury car owners, but during 14 years of rule he never dared to touch the gasoline subsidy that consumes upward of $12.5 billion a year in government income.

But all good things must come to an end. For Venezuelan motorists, to whom cheap gas is something of a birthright and fuel efficiency a foreign concept, that means having to pay more than the 5 cents a gallon that gas currently costs at the official exchange rate, or less than a penny at the widely-used black market rate.

For now, motorists seemed unfazed by the idea of paying more at the pump because it's unknown how much prices will rise. Maduro is still testing the political waters to see if Venezuelans already squeezed by 54 percent inflation and a collapsing currency are willing to fork over more to fill up.

The lobbying began the day after Maduro's party prevailed in Dec. 8 mayoral elections, when Vice President Jorge Arreaza said it was time to debate raising gas prices. The idea gained steam when Oil Minister Rafael Ramirez declared that having the world's cheapest gas "isn't a record to be proud of."

Then last week Maduro said he favored raising prices gradually over three years, making sure it doesn't add to inflation.

"As an oil nation, Venezuelans should have a special price advantage for hydrocarbons compared to the international market," the former bus driver told mayors on Dec. 18. "But it has to be an advantage, not a disadvantage. What converts it into a disadvantage is when the tip you give is more than what it cost to fill the tank."

Politically, the timing is right to increase gas prices. After four elections in little more than a year, Venezuelans aren't scheduled to go to the polls again until late 2015. That gives Maduro a rare opening to push unpopular reforms that analysts say are long overdue. Coupled with a devaluation of Venezuela's currency, the bolivar, eliminating the gas subsidy will help close a budget deficit estimated at 11.5 percent of gross domestic product, among the world's largest.

Most of their cars are clunkers, Dodge Chargers and Chevy Malibus from a bygone era many Americans would rather forget. Some are held together with wire and rope, and driven as unregulated taxis that take the place of public transport in major cities.

Ruben Ruiz is the proud owner of one: a 1975 Ford LTD station wagon that he affectionately nicknamed his "poverty spook," because the vehicle keeps him gainfully employed transporting everything from eight passengers at a time to crates of fresh fruit. He once even transported a cadaver.

The car was purchased new during the height of the oil boom known as Venezuela Saudita, or Saudi Venezuela, when a super-strong currency spurred frequent foreign travel and frenzied consumption.

He's held onto the rusting hulk though subsequent oil booms and busts, its velvet upholstery ripped apart and passenger doors impossible to open from the inside. He said modern cars don't afford the same heft or trunk space. Having paid for his initial investment several times over with cheap gas prices, Ruiz said he can easily afford a little more to keep filling up.

In Venezuela "you spend more on liquor than you do on gas," said Ruiz, who pays 6 bolivars to fill the 60-Liter tank every two days.

Many Venezuelans seem similarly unconcerned about the prospect of higher fuel prices. Despite mounting economic troubles and deep political divisions, it's hard to imagine a repeat of the deadly looting triggered in 1989 when then-President Carlos Andres Perez raised gas prices as part of an austerity package pushed by the International Monetary Fund. The unrest, in which at least 300 people died, became known as the Caracazo and remains a powerful deterrent against policies affecting people's wallets.

Indeed, Maduro is selling the price hike by promising to reinvest the savings to build schools and homes. It's a path pioneered by Indonesia, which cushioned the effects of a 44 percent fuel increase in June with $900 million in cash transfers to the poor. In 1998, an IMF-mandated fuel increase sparked protests that toppled the three-decade Suharto regime.

But in Indonesia, prices at the pump are $2.50 per gallon — 50 times higher than what Venezuelans currently pay. Even if the government ramps up prices to the level it says is needed to cover production costs, a liter will still only cost around 2.50 bolivars, about 40 cents on the dollar at the official exchange rate, compared with the 12 bolivars it costs for a liter bottle of water

"Prices are so cheap in Venezuela that they may make Saudi Arabia and Iran look expensive," said Lucas Davis, a University of California-Berkeley energy specialist.

The distortions created by such a low price are easy to spot. Lines at gas stations get longer every year as more cars come on the road, pushing up per capita gas consumption that is 40 percent higher in Venezuela than any other country in Latin America, according to Davis.

The subsidies also contribute to pollution, encourage the smuggling of oil to neighboring nations with much higher prices and handicap state-run PDVSA's efforts to develop the world's largest oil reserves. The IMF said in 2011 that a whopping 16 percent of Venezuela's public income is spent on energy subsidies.

Davis said economic theory holds that higher prices, if sustained, over the long run will push the guzzlers off the road and force Venezuelans to fall in line with a global trend toward cleaner, more fuel-efficient vehicles.

But in Caracas' urban jungle, where multi-lane roadways are the norm, sidewalks few, and crime rampant, old habits die hard.

Homemaker Patricia Lira says she has no plans to stop driving her 4x4 Jeep Cherokee to buy bread a few blocks from her house, even if prices go higher.

"I'm embarrassed to admit it," she said, "but I'll use my car the same way I do now."